What the Proxy Must Tell
from
September/October 2006
by John R. Engen
Under the SEC’s new rules, the compensation committee will have to spell out in next year’s proxy how it puts together total comp packages for the CEO and other top executives. Here are 12 questions its members will have to address, adapted from a list assembled for clients by Michael Melbinger, head of the executive compensation practice at Winston & Strawn, a Chicago law firm:
- What are the objectives of the company’s compensation program, and what is it designed to reward and not reward?
- What are the elements of each executive’s compensation, why were they chosen, and how do decisions regarding each of them fit into overall compensation objectives?
- What are the policies for allocating long-term versus current compensation, for cash and noncash compensation, and among different forms of noncash compensation?
- For long-term compensation, how were different award allocations determined?
- For equity-based compensation, how did the committee determine when to grant the award?
- What specific items of corporate performance were taken into account in setting compensation policies and making compensation decisions?
- What factors did the committee consider in deciding on any material increase or decrease in compensation?
- How did the committee consider earlier compensation, or gains from prior option or stock awards, in setting retirement benefits or other elements of compensation?
- How much wealth in equity awards (exercised and unexercised) has each executive collected over the years, and how have the shareholders fared over the same period?
- What is the impact of accounting and tax treatments on each form of compensation?
- Has the committee engaged in benchmarking? If so, identify the benchmark.
- What if any role has a compensation consultant played in determining this compensation?
